One sign of an improving economy is that credit card offers are filling mailboxes again. Some offer a low promotional rate (sometimes zero) when you transfer a balance from another credit card or loan. Should you go for it? We suggest asking yourself these seven questions first:
1. Am I likely to get a promotional APR (Annual Percentage Rate) lower than what I’m paying now?
You may not be granted the great rate being advertised unless your credit is in very good shape.
2. Can I pay off the transferred amount before the promotional period ends?
For example, if you’re thinking of transferring a $3,000 balance to take advantage of a 0% interest offer that ends in six months, can you afford the higher payments once the promotional rate ends?
3. What will the rate become when the promo period is over?
If you don’t pay off the transferred balance in time, what will the APR become? Watch out for “deferred interest” offers phrased like this: “No interest if paid in full by [DATE].” If the balance isn’t paid off by that date, you could retroactively be charged a high interest rate on it.
4. Is there a balance transfer fee?
There often is, usually 3% of the amount transferred. For a balance of $3,000, for example, that could be as much as $90.
5. How will my monthly payments be applied?
Be sure to read the fine print to understand if your loan payments will be applied to the higher or lower interest balances first. You’ll pay less in interest of the loan payments are applied to the higher interest rate balances first.
6. If I make a late payment during the promotional period, will I lose the special rate?
The answer is usually yes. Your rate will revert to the regular APR, which means you’ve lost the benefit of transferring your balance (and perhaps paid a transfer fee to boot). And in some cases, card issuers will charge a higher interest if a payment is late.
7. Will transferring a balance affect my credit score?
According to Fair Isaac Corp., which issues FICO credit scores, using a high percentage of available credit leads to a lower score1 because it “can indicate that a person is overextended, and is more likely to make late or missed payments.” In other words, it could hurt your credit score to transfer an amount that is close to the credit card limit.
Clearly, there’s more to a good balance transfer offer than an exciting headline. If you’re interested in getting a better rate on an existing loan or credit card, why not see us first? We’ll help you analyze an offer you’ve received – and there’s a good chance that with our VERMONT Platinum Visa® credit card and low-cost loans, we can give you an even better deal.
Transferring a balance: where to go to…
Research a good deal. Haven’t come across that perfect offer yet? Go to www.credit.com and click on Credit Cards to see deals currently being offered around the country. The site also lets you compare up to four cards to find the best one for your needs. But remember, it takes good credit to qualify for the best rates. Compare to VSECU’s VERMONT Platinum transfer rate.
Crunch the numbers. To see whether a particular offer would make sense for you, try the free calculator at bankrate.com.
Learn your credit score. For $19.95, you can learn your FICO score at www.myfico.com. But be aware that lenders use different formulas to tweak this score. Also, credit bureaus will provide you a credit report once a year at no charge, go to www.annualcreditreport.com.